Monday, October 31, 2011

Investors knew all was not well at MF Global. Its stock price tumbled last week, giving it a market capitalization of $200 million, not much when compared to $40 billion in assets. Headlines on Friday said customers were starting to walk. The company was in much worse shape than it appeared, and the first concrete evidence of trouble came this morning when the New York Fed and New York Stock Exchange suspended the company. Since then we have learned that buyout talks over the weekend did not progress far and after continuing late into the night, were called off at 5 a.m. so that the company could prepare its bankruptcy filing.

Though classified as a broker-dealer, MF Global was operating more in the manner of a hedge fund toward the end, with a startling $6.3 billion in exposure to European sovereign debt. Wall Street will try to shrug off its bankruptcy as the equivalent of a hedge fund liquidation. But it will be expensive for JPMorgan and Deutsche Bank, each of which are owed $1 billion, according to the bankruptcy filing.

The MF Global bankruptcy won’t completely undo Wall Street’s stock trading gains this month, but it is another reminder of how fragile the big-money financial web can be.

Sunday, October 30, 2011

At the beginning of September I decided I wanted to try not to use my credit cards for point-of-purchase payments. I don’t have a debit card, so this meant paying mostly with cash. I had a handful of credit card purchases in September, but this month, there were hardly any. I went shopping less than ten times this month and paid in cash. I used my credit cards mainly at the gasoline pump. I also used them to buy postage, both online and at the post office.

I made only one online purchase this month, and I paid for it with a PayPal balance that came from a customer who made an online purchase from me. I am not a big fan of PayPal in its current form but I have to admit it is a very efficient system when used this way.

The latest quarterly reports from the credit card companies show a marked softness in transaction volume. Part of the reason is that people are making fewer shopping trips to save fuel. But part of it must also be that some shoppers are paying in cash more often. With banks planning substantial increases in fees for using debit and credit cards and transaction fees for checks, cash is showing a new advantage in transactional efficiency.

Saturday, October 29, 2011

Again this fall, I have kept the central heating in my house off, heating only the rooms I am actually using and only for as long as necessary. The weather has helped. Locally it has not been particularly warm or cold, and with wetter weather than usual there hasn’t been the usual October freeze.

I am not the only one taking this approach. A partial approach to home heating is still unconventional enough that people who do it don’t brag about it. But I have been relatively forthright in explaining to people that I spend the colder weather mostly in one room in my house, the office, leaving the rest of the house essentially unheated, and more people this year have been responding by telling me how they are doing variations of the same thing.

For some, the kitchen is the room they prefer, and that, of course, is the old way of doing it. It makes perfect sense if you have a supply of firewood (easy to come by in this neighborhood) and a wood-burning stove in the kitchen. A century ago, the average house did not have central heat, and huddling in the kitchen or around the fireplace was a necessity in colder weather.

For me as a writer and computer programmer, it is easiest to huddle at my desk. I can easily close the office door and focus on writing — something I would want to do soon enough anyway.

Measures of oil consumption in particular bear out the suspicion that people are leaving the heat off. This decline in energy consumption is one of the reasons the U.S. trade deficit has backed off from its previous record levels.

Friday, October 28, 2011

Bank Transfer Day is a boycott movement protesting some of the fees at the giant banks, designating November 5 as a day for customers to move deposits to local credit unions. What started out as a Facebook post has grown into a nationwide movement with an estimated 500,000 people participating.

The loss of 500,000 customers would be a major blow to almost any business, but the giant banks will barely notice the decline in deposits, and that not until they check their balance sheets in January. For the benefit of those who might worry, the movement of deposits is not like a run on the banks and won’t create unusual cash management challenges. Banks face larger cash management exercises every Thursday and Friday as payroll direct deposits go out.

Bank Transfer Day is not the only consumer movement affecting the banks. It is supported somewhat by Occupy Wall Street, and all year, Move Your Money has been agitating for local banking. At the same time, consumers are moving on their own after being startled by new banking fees. When Move Your Money first launched, banking industry observers said they would be surprised if the giant banks lost more than 2 or 3 million customers. But that was before the latest round of new fees, and looking at it now, the eventual movement of customers will be an order of magnitude larger than that.

The winners in this movement are, first of all, the banking customers who will save a fortune in fees, but also the credit unions and local community banks. Some credit unions reported almost a year’s worth of new deposit customers in the month of September, and October and November could be larger. With the additional deposits, the rate of small bank failures, already low, will become that much lower. The FDIC also benefits, and not just by avoiding a few small bank failures. When the next major bank failure hits, the Deposit Insurance Fund will be on the hook for a smaller amount of insured deposits.

There is a bigger issue at stake than banking fees themselves. Banks ultimately need to charge for the services they provide, but the cost structure of the giant banks is 2 to 5 times that of almost all other banks. Cost, rather than greed, is the reason the giant banks feel justified in charging $8 for a service that might cost $2 at a normal bank. But the costs put the giant banks at a competitive disadvantage in a time when the trend is for banks to charge transaction fees to cover the costs of services. The giant banks cannot survive in their current form; they must find ways to cut their operating costs.

Bank of America, which inspired much of this fuss with its announcement of a $5 per month activity fee for debit cards, now says it will provide customers with more ways to avoid the monthly fee. For example, active credit card users might not be charged for using their debit cards. But the bank has not settled on anything specific yet. In the meantime, the new fees are already taking a bite out of the card business. Visa reported soft transaction volumes, indicating that consumers, uncertain about what fees they will be charged, are holding back on debit card transaction even in situations where no usage fees are actually in effect.

One very small bank failed tonight, though its name might make it sound more important than it is. The bank was All American Bank, in Des Plaines, Illinois, with $33 million in deposits. International Bank of Chicago is purchasing the assets and taking over the deposits.

The NCUA took over a credit union yesterday. Birmingham (Alabama) Financial Federal Credit Union, with 400 members, was put into conservatorship and its office closed. Members can access their accounts at the nearby office of America’s First FCU. In conservatorship, the NCUA will hope to improve the fortunes of the credit union. In this case, not having to pay the expenses of operating its own location might help the credit union’s financial picture.

Thursday, October 27, 2011

It is a relief to see that the next step in the European sovereign debt saga, announced today, is not the “decisive action” that pundits had called for, but a measured response to the most immediate problems.

This distinction between control and problem-solving is one of the fundamental concepts of leadership. When things are going badly, it is a natural impulse to want to seize control — to do and decide everything yourself instead of trusting the experts to find solutions to the myriad details. But the biggest problems require the most ideas and the most action. When one hundredth of the Russian countryside was on fire, the central government did not say, “Don’t do anything till we get there.” Instead, it offered general guidance about what local authorities and individual citizens should do to respond. It deployed its own resources, including the military, in a supporting role where it seemed they might do the most good.

The problems in Greece and Italy were brought to the current point as a direct result of too much strong-willed central control. With the debt crisis in Greece, it was the European Union forcing a plan on Greece, then another plan when that one failed, and so on. The latest plan tacitly admits that was all a mistake, and turns most of the budget issues back over to Athens. The more recent and more startling budget crisis in Italy comes from political leaders strong-arming the political process to try to keep a corrupt system going. Italy’s situation will not improve until it replaces its current leaders with ones who can take a more flexible approach. The way things stand now, Italy is at risk of collapsing in a matter of weeks, long before Greece might, but when the commitment to corruption is set aside, Italy can easily find ways to keep the government and country going.

With control-minded leaders, things eventually deteriorate to the point where a more open approach is forced upon them, so that more ideas can be involved, and more complete solutions forged. This is what has finally happened in the European Union. If leaders cling to control beyond this point, then either the leaders are replaced or the whole enterprise collapses. This is the nature of the turning point we just observed in Libya and the one we are rapidly approaching on Wall Street. There was, of course, never any reason for Europe to go down that road.

Wednesday, October 26, 2011

It is days before Halloween, but the Christmas sales have already started.

Part of it is that shoppers are squeezed for time, more so in December than in any other month, so the heart of the Christmas shopping season has moved to November. Retailers have to target Christmas shoppers in November, or they will miss many of them. Then, this year, retailers have become nervous about consumer price resistance. With record high prices for cotton and other cost increases, prices for some items of clothing have jumped 20 percent from a year ago, and consumers are responding not by buying less, but by not buying at all.

Retailers committed to their Christmas stock levels in July and August when it seemed that consumer sentiment was rising, and even though they were cautious in their buys, they are now getting nervous. If consumers will not buy $110 blue jeans, perhaps they will not buy anything else either. Whatever stock retailers are stuck with at the end of November will not be easy to clear out in December or January, so price reductions are starting quietly this week. Retailers are pulling back at this point on the prices that may have been too high to begin with, with the idea that the real sales will hit in the second half of November.

When retailers are anxious to sell their possibly excess stock before consumers buy in some other store, that is a setup for a price war. Price wars aren’t hitting yet, but some retailers are making price guarantees, making up the price differences if customers find a lower price for a purchase before Christmas. Lower prices are almost guaranteed, so retailers are betting most costumers won’t be organized enough to claim the refunds they’ll be due under the price guarantees.

The one area where a price war cannot occur this year is computers. The looming hard disk drive shortage, because of flooding in Thailand, will have manufacturers and retailers holding the line on computer prices, and offering bundle discounts on printers, software, and game controllers instead.

Tuesday, October 25, 2011

A study, reported today in USA Today, checked for signs of germs in public places and confirmed what epidemiologists and folk wisdom alike had already believed: public hand-contact surfaces are crawling with germs.

It was a superficial study that didn’t attempt to distinguish between the natural germs found in dirt and the more dangerous germs that spread from person to person. It did not even distinguish between bacteria and fungi. It nevertheless found some interesting points.

The most problematic surfaces are outdoors or are items that aren’t cleaned every day. Vending machines, ATMs, and self-service gasoline pumps were the most likely to have a significant germ presence. Rest rooms, which typically are cleaned regularly, were cleaner than door knobs and computer keyboards and mice, which are not cleaned so often.

Scientists hope to find out more. In the meantime, their advice is about what you would expect, and is especially important as the flu season is upon us in the north. Wash your hands throughout the day and especially before eating and when you arrive at your destination after traveling or commuting. Clean your computer keyboard.

Setting aside concerns about what happens to ordinary people in order to ensure the stability of the financial system, a recovery in the construction sector especially, and the expansion of global GDP. I know, it doesn’t sound like something the Vatican would say, but there it is. To think about what will happen to people is dismissed as the “utilitarian thinking” which is said to be the cause of the world’s financial problems. “Individual utility,” a concept that emphasizes the benefits of products such as food and housing for those who most need it, must be set aside “for the good of the community,” that is, focusing on aggregate economic measures such as GDP.

No investigation of financial trading technology. Technology must not be looked at because it lacks a soul and therefore is beyond the scope of the “discernment and ethical evaluation” needed for “economic and social development.” I’m scratching my head, but as far as I can tell, that’s really all this section says.

The establishment of a “world political authority,” a kind of world government the Vatican says is needed to regulate transactions that potentially cross national boundaries. This would be a new, autonomous governing body which would consult with nations but would not be answerable to anyone. Kind of like a new Roman Empire, though the Vatican, obviously, doesn’t draw that comparison.

A continued expansion of financial markets beyond any recognizable relation to the real economy, and along with that, the expansion, strengthening, and eventual nationalization of the big institutions that dominate the financial world, with an eye toward bringing them together to form the financial foundation of the world government. And three afterthoughts in this regard: taxes on derivatives, a new Wall Street Bailout, and more clarity in the banking laws so that Wall Street can more easily steer clear of the dictates of banking regulators.

Naive, dangerous, laughably easy to criticize (aside from the bit about derivatives, that is). It is almost not fair to call the Vatican to account for the flaws in its economic thinking. But this new document is more than that. The Vatican has issued recommendations on economic matters before, and they have always been guided by a concern for what happens to the masses of people. Not this time: the new Vatican is obsessed with global output and the health of Wall Street and national governments, while at the same time saying in so many words, “The people be damned!”

It is, quite simply, not what the Vatican stands for. I don’t know what to say except, “What the hell?!” Has the Vatican been bought out?

Sunday, October 23, 2011

There are floods in several parts of the world right now, but it is the floods in Thailand that are likely to slow down the computer industry ever so slightly.

Thailand manufactures a significant share of hard disk drives. More importantly, it is the source for most of the motors used in hard disk drives, and the factories that make the motors may remain closed for the month of November as flood waters recede. This is expected to lead to a temporary jump in prices for add-on hard disk drives and delays of two weeks in deliveries of some new computers.

There are stockpiles of hard disk drives in factories around the world, but no one seems to know how large the inventories are. One estimate is that the computer industry as a whole has a three-week inventory of hard disk drives. With the supply of new drives reduced by more than half for more than a month, shortages will surely occur, although no one can predict exactly where or how long they will last.

Businesses are slow to replace desktop computers anyway, and that is a factor that may alleviate the hard drive shortage. If prices for computers increase temporarily, many large businesses will surely opt to postpone all computer replacements for a month or two until the shortage has passed.

The spring floods in Manitoba never did recede to normal summer levels, and it is not likely to happen over the winter either, according to the province. The worst problems are in Lake Manitoba, which saw coastal flooding last weekend because of high water levels and high winds, and downstream at Lake St. Martin, where several rural communities remain evacuated. To reduce the chance of a flood disaster in April when snow melt will feed into already flooded lakes, the province is digging an emergency trench through the bog east of Lake St. Martin to drain that lake faster into Lake Winnipeg. Freezing weather has held off so far, and with luck, the channel may be completed and put into operation in the middle of November, so that it can drain water away from the flooded lakes through the winter. The emergency channel may cost $100 million, but that is not so large compared to the almost $1 billion in flood damage that occurred upstream this year.

The political aftermath of the spring flooding shows frustration with the limitations of flood management. Much of the land in southern Manitoba and the neighboring areas of North Dakota and Minnesota is formed from an ancient lake bed. It is the nature of a lake bed to hold water, and the citizens, politicians, and engineers who try to get the area to shed floodwaters as easily as the other areas of North America are working against that nature.

Friday, October 21, 2011

Newly bailed-out European banking giant Dexia is more insolvent than we thought. About €1.5 billion of its capital since 2006 has been the result of money lent by the bank to two of its largest stockholders, who used the loans to buy stock in the bank. This is not considered a proper banking practice and has long been illegal almost everywhere. In effect, the bank was borrowing money from itself. This was legal at the time in Belgium but the phantom capital caused concern for regulators and is still a problem today as regulators try to keep Dexia afloat.

Austerity budgets may be on the way for the rest of Europe as the European Union tries to work out a solution to the sovereign debt problem that doesn’t lead to the collapse of any more banks. Complicating matters are rumblings that more than a few of Europe’s banking giants are in poor financial condition and may become insolvent even without any loan defaults from member nations.

Occupy Wall Street may already be diminishing the credibility of Wall Street banks, or maybe it is just that the banks’ financial reports are as clear as mud this time around. Either way, the news media and investors weren’t willing to take this week’s quarterly reports at face value, with one news writer describing them with the phrase “funky accounting.” Banks, of course, have used funky accounting for years, but I have never seen the world dismiss Wall Street’s earnings reports in quite this way.

It is a few weeks into the quarter and the time when banks traditionally issue their earnings reports. Reports that look sickly can lead to bank closings in the coming weeks.

It is not only small banks that are failing. Tonight saw the failure of Community Banks of Colorado, with 37 locations in Colorado and 4 in California, $1.33 billion in deposits, and just $50 million more than that in assets. Kansas City-based Bank Midwest is assuming the deposits and purchasing the assets. Bank Midwest’s holding company, which was formed two years ago specifically to acquire troubled and failed banks, already has a presence in Colorado, and that will become much larger with this new acquisition. The holding company is considering setting up its headquarters in Denver.

The failed bank has been operating under a regulatory order only since February, when the Fed determined that its capital was running out. The bank explained its problems as the result of a decline in resort real estate in Colorado.

Three $200 million banks also failed tonight, two in Georgia and one in Florida.

Old Harbor Bank had seven branches along Florida’s Gulf Coast north of St. Petersburg. It was ordered to raise capital last year, and tried to arrange a deal to be bought out. Deposits and assets are being transferred to Boca Raton-based 1st United Bank.

Two banks failed in the greater Atlanta area. Decatur First Bank had five branches clustered around Decatur, Georgia, east of Atlanta. Deposits and assets are being transferred to Atlanta-based Fidelity Bank.

Community Capital Bank had two branches in towns south of Atlanta. State Bank & Trust, which amassed a fortune in new capital to acquire failed Georgia banks, is acquiring the deposits and assets. This is State Bank & Trust’s seventh such acquisition in the Atlanta area.

Thursday, October 20, 2011

This afternoon Moammar Gadhafi and half a dozen of his criminal associates were arrested. It takes a moment to remember that as the year started, Gadhafi was firmly in control of the country of Libya. As journalists look back on Gadhafi’s fall from power, they are identifying the speech of February 22 as the turning point.

The nationally televised address, which included the memorable passage, “inch by inch, room by room, house by house, alleyway by alleyway,” was widely understood as either a threat or an actual plan to kill most of the country’s people. Public opinion was already against Gadhafi, but after that speech, there was no turning back. If no one was safe from Gadhafi’s wrath, then there was no extra risk in putting up a fight. Even the most loyal government officials worried that they too might be on Gadhafi’s list. Those who could fled for their lives, as did the country’s thousands of foreign workers.

Within two days, Gadhafi no longer had a government or a functioning national economy. Most of the regular military changed sides. Gadhafi and his remaining security forces did go on to kill thousands of people, mainly by carpet-bombing and shelling Libya’s cities, but as they met resistance from the country and the world, the number of victims was nowhere near the millions that Gadhafi saw in his mind’s eye on February 22.

No matter who you are, it is important to have friends. It is a point that Gadhafi, when he put his faith in bluster and violence, forgot.

As I write this, it is 7:12 a.m. in southeastern Pennsylvania and the first light of day is filtering in through the treetops. People are getting up at night and arriving at work before sunrise.

This night-in-the-morning effect is the combined result of nature and politics. The day is naturally shorter as fall wears on, and baseball saving time makes the day seem shorter than it is already. But while the lack of daylight may be a fact of life, it is also an extra challenge for an economy trying to get itself moving.

The gloom of winter affects people’s economic decisions. Stock market analysts can show you on charts how traders become more risk-averse in fall and winter. That’s not a favorable indication for the current highly speculative state of the U.S. stock market. But the same effect also reduces the number and scope of business initiatives. This affects activity on large and small scales. Not so many new businesses open their doors. There are fewer product releases. Sales visits are less frequent. Workers are less likely to change jobs.

With the cycle of the seasons working against the economy, I am not expecting the long-awaited economic rebound to arrive until February. Then the days will again be as long as they are now, and they will not yet be hindered by baseball saving time. As the financial headlines point out, many of the pieces are already in place now for a proper recovery. But attempts at expansion at this point are swimming upstream. It will come more easily as spring approaches. In the meantime, I am afraid it will get darker before it gets lighter.

Wednesday, October 19, 2011

The EU has searched perhaps 10 major banks looking for evidence of price-fixing. The European Commission said it was specifically concerned that banks might be manipulating the Euribor, a key base rate in Europe that derives from interest rates set by most of the European banking giants. Anyone who could manipulate the Euribor could make a fortune by trading in derivatives whose value follows the Euribor. However, the Euribor aside, any system by which banks disclosed their interest rate changes to each other before making them public would be a serious concern and a cause for criminal indictments and regulatory penalties.

What is more significant is the change in regulatory tone that the action may imply. Up until now, regulators in both Europe and the United States have taken a hands-off approach to the banking giants, almost as if they were regulating nuclear power stations. This new series of raids is anything but hands-off and may, we can hope, hint at a new regulatory approach in which the banking giants will be expected to follow banking laws just as closely as all other banks do.

Tuesday, October 18, 2011

I personally have mixed feelings — an old-fashioned conflict of interest — about the Occupy Wall Street demonstration and the Occupy movement it has inspired. I agree entirely with the Occupy movement’s objectives of limiting corporate power so that economic life is more fair for everyone. I would hasten to add that the advantages that the largest corporations enjoy under the current regime are strangling the national and global economy. On the other hand, most of my income comes directly or indirectly from the big corporate system, including some of the giant banks. I wouldn’t mind holding on to that income stream, at least until I can get my mortgage paid off. If change comes slower, I imagine, I might adapt with less personal financial pain.

In my conundrum you can see why the Occupy movement’s time may have come. Think back to 1981, just before the White House kicked off the Reagan recession. Nearly half of U.S. adults were employed by the big corporations and their suppliers and resellers. But the Reagan-Bush years were also the era of downsizing, when corporations took the axe to whole departments and whole layers of management. And the layoffs and cutbacks have continued, especially in the financial distress that has gripped big business for the past six years. The most powerful corporations now provide the livelihood of less than one fourth of families.

This shift is especially poignant if you visit Wall Street. The financial corporations that once dominated this neighborhood (still known as the Financial District) and provided much of New York City’s income have been reduced by half in the last decade. They may still tower over Wall Street itself, but they are no longer big enough to control the politics and culture of the whole city, or even to find a use for the hundreds of mostly-empty office buildings within walking distance of Wall Street.

With fewer and fewer people benefiting from their success, the big corporations have fewer political supporters. The supporters they do have are less outspoken than before. Even if you decide to tie your lifeboat to Wall Street, you don’t want to tie it too tight. Only the most religious adherents of the corporate way, or those who are ready to retire anyway, are prepared to go down with the ship.

If your retirement is 50 years away, that is another matter entirely. Workers who are in the first half of their working lives find their lifetime financial self-interest opposed to the corporate system and especially to the subsidies and government-sponsored barriers to entry that protect the big corporations. You’ll make more money over your career if the current corrupt regime is swept away quickly. With corporations virtually in a hiring freeze over the last five years, most of the brightest minds among the under-28 contingent of workers are forced to find their way outside the system. Even without trying, they will easily overcome the old system within 20 years. But if they have decided it’s time now, how long can the old corrupt regime stand?

Monday, October 17, 2011

In ancient times, word that the king was seriously ill could lead to an economic depression. The uncertainty would make people scale back their plans and hesitate on new initiatives. This makes sense when you consider that this was before the days of business executives, and the more capable kings would serve as the central manager who kept the country working together. If there was no king to watch out for the economic system as a whole, it was hard not to have doubts that the system could keep moving forward.

We are seeing some of that effect in the United States this year. The economic statistics from May, June, July, and August have showed that the national government’s flirtation with bankruptcy took a heavy toll on the national economic psyche. When we find out that the people in Washington are no longer even talking to each other, and a fraction of them are actually trying to bring the country to a halt, it is like hearing that the king is dying.

The news from Washington, of course, has not improved in the two months since. At the end of September, with the budget deadline looming, the House of Representatives took most of the week off. In the end, there was no budget because no one in an official capacity in the House had even tried to write one. At the deadline the House could barely agree on a resolution allowing the federal government to stay open.

The king is dying. And so it comes as no surprise if several measures of economic confidence are at the lowest levels ever. A disaster is on the way, soon or later, inevitably, and the people in Washington will go on recess leaving it to us to figure out what to do.

It is no wonder that tens of thousands of people are huddling in living rooms, hotel meeting rooms, union halls, and out on the street to try to figure out the answers that can no longer be found in Washington. These private discussions may ultimately provide the road map we will realize we need when we get to the next turning point.

Sunday, October 16, 2011

The last time I checked in with KFC and Taco Bell, they were in the middle of marketing strategies based on the idea of celebrating junk food. At KFC, a second attempt at introducing the Double Down, a greasy slab of a meal that was as indefensible on culinary grounds as it was on nutritional grounds. At Taco Bell, publicity-stunt litigation that revealed that Taco Bell’s “beef” was only partly beef and also included sand and other undisclosed ingredients. Taco Bell’s belligerent full-page newspaper advertisements, like KFC’s “extreme” television commercials, tried to glorify the general junkiness of fast food. The message was, you know it’s bad, and you know you like it.

As one nutritionist put it, when people really want good food, they don’t go to Taco Bell. Both parts of that comment turned out to be more true now than they were then. People do want good food. And, they don’t go to Taco Bell. And when people hear that fast food is good to eat because it’s bad for you, they aren’t buying it.

U.S. same-store sales at Taco Bell and KFC were down 3 percent from the year before when the parent company reported results a week ago. The actual results were worse than that, because they exclude the many underperforming stores that were closed during the year.

One of those stores was a combined KFC and Taco Bell in my local area. It closed while the McDonald’s across the street remains open. That contrast alone is a sign of the failure of the “double down” strategy of proudly touting dangerous junk food. McDonald’s, in recent years, has taken the opposite marketing tack, trying to persuade its customers that it is improving the food quality of its food. It is debatable whether McDonald’s upgraded food is actually any healthier than the tacos at Taco Bell, and McDonald’s results too have been uneven in recent years, but at least its store is still open.

U.S. consumers really are looking for better food. It can be confusing trying to figure out what food is really best, and habits can take time to change, but when restaurant brands make a point of telling you how bad their food is, that takes some of the confusion away and can actually lead people to change their eating habits.

Saturday, October 15, 2011

Harrisburg, the state capital of Pennsylvania, is in bankruptcy. It is perhaps not the city you would expect to lead the new wave of U.S. municipal bankruptcies, but creditors took a tough negotiating position against Harrisburg. They worried, perhaps, that showing a willingness to make even the slightest concession could set the wrong precedent. But as with an individual or business in financial distress, any single large creditor that insists on preferential treatment can force a bankruptcy filing, and that is what appears to have happened in Harrisburg. The court can then step in to ensure that the other creditors are treated fairly, which is the whole idea of bankruptcy.

What makes this case more sensational is that the state legislature got involved, passing a law a few weeks ago that appeared to be intended to favor some of the city’s creditors, those with ties to the governor’s office, over others. The state and mayor have filed motions opposing the bankruptcy, moves that lend more credence to the allegations of corruption in the state legislature. The court will start to sort all this out Monday morning. Realistically, though, regardless of legal theories or legislative creativity, the state cannot prevent a city that is insolvent from having some kind of orderly process for sorting out its obligations; if the bankruptcy court can be bypassed, a substitute administrative process will have to be put in place to do the same thing.

Harrisburg’s financial problems resemble those of a business bankruptcy, with an investment, in this case for an incinerator, that ran into difficulties at the same time that revenue was declining. A city has advantages in bankruptcy that businesses do not have, however. The court is not likely to auction off city hall the way the headquarters and other core assets of a business might be sold off to pay business debts.

If Harrisburg gets through bankruptcy with its public assets relatively intact, it may set a pattern for other municipal bankruptcies across the United States over the next five to ten years — exactly the precedent that the creditors were trying to avoid.

Friday, October 14, 2011

Are a few of the largest U.S. banks getting together secretly to set debit card fees? Congress and an ATM group are separately asking for an investigation of the seemingly coordinated debit card fee announcements from some of the banking giants.

Governments of Belgium, France, and Luxembourg have substantially agreed on a Citibank-style rescue package for Dexia. The countries are guaranteeing some of the bank’s assets for the next 10 years and may ultimately be giving the bank about $50 billion. Importantly, these costs will not occur immediately for the countries involved, so the bailout will have little initial effect on the countries’ strained budgets. The bailout costs appear on the surface to be less than that of winding down the bank.

In China, the major banks are having problems with real estate loans, the result of a flawed stimulus program, and the sovereign wealth fund is trying to help by buying shares of the banks in the stock market.

Surveys show that most Americans are aware of Occupy Wall Street. The protests have been reported worldwide for a month, but took on a higher profile in the U.S. news media after city police set up an ambush to arrest 700 of the demonstrators in the largest mass arrest in U.S. history. Most Americans also agree with the protest’s central goals of limiting corporate power and raising income tax rates for millionaires.

At least 10 officers at United Commercial Bank, which failed two years ago in California, China, Taiwan, and Hong Kong, are facing criminal charges and other legal actions in connection with the failure. Regulators say the officers worked together to falsify documents to hide the bank’s financial condition from regulators, auditors, stockholders, and employees.

The current run of bank failures is virtually over, at least in the FDIC’s budget. The new budget works if there is about one bank failure per week through 2012 and no more than one per month after that. By adopting this rosy forecast, the FDIC can postpone until next year the need to raise additional funds from the banks it insures. But the FDIC forecast is so optimistic, it is not assured of holding up through the next six weeks of earnings reports, which so far for the banks have included signs of a U.S. economy under new stress.

At the very least, the hopes for a slowdown in bank failures will have to wait until next week. Tonight at closing time, four $200 million banks were closed by state regulators in New Jersey, Georgia, North Carolina, and Illinois.

The failed New Jersey bank was First State Bank, with offices in Cranford and Westfield in the New York City suburbs. Northfield Bank, based nearby in Staten Island, New York, is taking over the deposits and purchasing the assets. Northfield Bank will add the two branches to the six it already has in the east central part of New Jersey.

In Gray, Georgia, near the center of the state of Georgia, it was Piedmont Community Bank, which also had an office nearby in Macon. State Bank and Trust Company, which is based in Macon, is taking over the deposits and purchasing the assets. State Bank and Trust Company has made a business of acquiring failed Georgia banks, and says it plans to continue to operate the two branches.

In Asheville, North Carolina, the failed bank was Blue Ridge Savings Bank, which had 10 branches, including one in Greer, South Carolina. Bank of North Carolina is taking over the deposits and purchasing the assets. The new locations represent a natural geographical expansion for Bank of North Carolina.

In western Illinois, the two branches of Country Bank closed. Blackhawk Bank & Trust is taking over the deposits and purchasing most of the assets. Country Bank’s holding company borrowed $4 million in TARP funds and raised $1 million more in a 2010 stock offering, but it was not nearly enough to make up for the bank’s bad loans.

Thursday, October 13, 2011

Success draws criticism. Perhaps that’s human nature. But what is shocking is how little success it takes before the haters come out. Consider the Occupy Wall Street movement. All the success this group really has is the ability to stay in one place and stay focused. You wouldn’t think that would be enough to inspire even a jealous glance from a multimillionaire with a comfortable house and an unstoppable business career.

Yet the comments keep coming from the millionaire’s club, and the jealousy is obvious once you start to tune it in. If you don’t have a job, you have no one to blame but yourself, one commented, as if Occupy Wall Street was just sour grapes from a group of college graduates who had the door slammed in their faces one too many times. But actually, this particular commenter’s own “job” was that of a political candidate. “Candidate” means, of course, that he hopes to have a job in the future, but does not have one now. That makes him unemployed — unemployed with no one else to blame and, judging by his other recent comments, perhaps a tad more desperate than the Occupy Wall Street movement he stopped by to criticize.

Some of the other criticisms of Occupy Wall Street that border on incoherent when you first hear them, start to make sense when you look at them through this lens. The Speaker of the House took a few minutes out of his busy day to criticize Occupy Wall Street? He might well envy the work ethic and vitality of the demonstrators on the street, who in a few short weeks have managed to accomplish more than his own House has done all year long. Granted, it’s not easy to light a fire under a team whose average age is a bit above 60, but the comparison is still an embarrassment. A snide remark from the CEO of one of the most successful bailed-out Wall Street banks? That makes sense too when you see it from his point of view. People around town are taking up collections to send pizza to the demonstrators — but who will be passing the hat for the $100 billion the Wall Street banks will need to keep going a year from now?

A net worth in the tens of millions, obviously, isn’t enough to take away people’s fear. Jamie Dimon is speaking with a degree of fear that would befit a man who was going to be out on the street himself next year. That won’t happen, though it is safe to say that some of Dimon’s colleagues will be in jail by then. One of the ironies of the current situation is that the people who have the most are the most afraid, while people who have nothing, who are out on the street and only eating tonight because of the kindness of strangers, are not so afraid. That alone tells you that the situation is not stable, that it cannot stay as it is. Before it is all over, the fearmongers will have to yield to the people who have a vision for the future.

Wednesday, October 12, 2011

The recent decline in home ownership rates is probably already the largest in U.S. history, and it is expected to continue for the next five to ten years.

The Census Bureau reported last week that home ownership rates in 2010 were 1.1 percent lower in 2010 than in 2000, but in between, there was a run-up of more than 3 percent to a peak in 2004 or possibly early in 2005. This means there was more than a 4 percent decline from 2004 to 2010, and with historically high foreclosure rates, home ownership has continued to decline.

The decline is not expected to stop until around 2020, as large number of homeowners elect not to buy or, with tighter lending, fail to qualify for a mortgage on their next move, and as households nearing retirement steer away from the responsibilities and financial risk of home ownership.

In the Great Depression, the home ownership rate declined slightly more than 4 percent from its peak. The current decline in home ownership, then, probably passed the Great Depression at some point late last year, to become the largest decline in home ownership in U.S. history.

The Census Bureau also reported surprisingly high vacancy rates in 2010, with nearly 1 out of 8 residential units vacant, which I have to imagine is the highest rate the United States has ever seen. It is important to note that vacation homes are usually counted as vacant in April when the Census Bureau does its count. However, it is clear that an unusually high number of housing units are owned by banks and investors.

Tuesday, October 11, 2011

Bank bailouts are sweeping the world — and on a scale that could make 2008 seem like a mere fire hose. In Europe, Dexia is getting a Citibank-style deal, while in China, there are widespread problems with speculative municipal real estate projects that threaten the financial system.

Dexia, based on Belgium and France and a major presence in Luxembourg, is a multinational bank with a scale and complexity comparable to the Citibank of 1998, and word is trickling in of a bailout similar in scale to the Citibank bailout of 2008. The deal involves about €90 billion in government guarantees for parts of its loan portfolio for the next 10 years. At the same time, the biggest operating divisions of the bank will be sold off. In particular, the Belgian government is buying Dexia Bank Belgium with its €80 billion in deposits.

Observers assume similar deals will follow for other European banks, including one or more in Germany, as various classes of assets lose liquidity in the coming weeks. Most large European banks got high marks in recent stress tests, but then so did Dexia, as the tests failed to consider the possibility of any decline in liquidity for most kinds of bank assets.

In China, the central government’s sovereign wealth fund is seeking to prop up the stock market by purchasing shares in the major banks there. The stock purchases Monday were only perhaps $50 million and didn’t move the market, but that may be the point. If the stock purchases continue through next year as planned, they may stave off or slow down a stock market collapse.

Banks in China hold huge portfolios of distressed real estate loans for projects ranging from railroads and dams to shopping districts and suburban housing developments. These projects were mainly directed by local governments, not independent private developers and builders, but other than that detail, the situation has a striking similarity to the real estate bubble that continues to weigh on the economies of Western countries such as the United States, Ireland, and Spain. Recognizing the situation, banking regulators in China are directing banks to lend less on real estate projects. Meanwhile, the central bank and other government entities are taking steps to keep the banks solvent. But the scale of the loans is such that no one knows whether such a plan can work. In any event, it will be a bumpy ride for the Chinese economy, where development projects were said to account for most of last year’s GDP. If the pace of new projects is cut back by half, it could be a hard landing for the national economy, but if the development projects are not reined in, the results could be worse.

Monday, October 10, 2011

Hank Williams, Jr. will no longer be heard on television on Monday nights. The country singer, now famous for little else besides singing the Monday Night Football theme song, no longer fit cable channel ESPN’s view of the image it would like its broadcast to have. It hastily pulled the theme song last Monday, and made the change permanent in an announcement on Thursday.

Officially, the move is the result of the regrettable political statements Williams made on a television program last Monday. He referred to the U.S. president and vice president as “the enemy” and compared someone, either the president or the house speaker, to a World War II villain who is better not mentioned by name. He failed to walk back his comments when offered the opportunity. ESPN would be hard pressed to put forward as an entertainment icon a person who had said these things, and historically, football broadcasters have been dismissed for lesser misstatements.

But there is more to it than this. It may be just as important that while he was insulting his country, Williams was coming across as an unwashed, unconcerned ruffian, a vagrant but for a change of clothes. Williams may have cleaned up his image somewhat in the early 1990s to become an unofficial spokesman for the National Football League, but now the NFL is upgrading its image, and Williams was not playing along.

The NFL is forced to change because of economic trends. Beer and pickup trucks may have defined the TV image of the NFL for a generation, but they haven’t been so prominent in the last six years. U.S. beer consumption has declined every year since about 1998, and more of it is coming from microbreweries, less from the major breweries and importers that were the dominant advertisers on NFL broadcasts in the 1990s. Pickup trucks are also in decline because of shifts in the economy, so much so that General Motors went bust, and they won’t be paying the rent for the NFL in the foreseeable future either. Instead, the NFL is trying to clean up its image to become more female-friendly, following the example of ice hockey, so that it can draw a broader audience and a broader range of advertisers.

Hank Williams, Jr.’s thrown-out-of-better-bars-than-this persona could scarcely have presented a more conspicuous clash with the NFL’s current promotional pitch, which is about selling pink team apparel for women and is tied to breast cancer awareness. When Williams forced ESPN and the NFL to take a closer look, I’m sure what they found was that there wasn’t a place for him in the NFL’s freshly scrubbed image. At the same time, another problem was looming. U.S. laws don’t permit political candidates to be broadcast entertainers, so ESPN would have been obliged to drop Williams, probably before the end of the season, as soon as he officially launched his campaign for the U.S. Senate.

Williams may have forced ESPN’s hand, but it was a move that was coming anyway. Beer is inexorably declining in U.S. culture, and everything that is tied to it must either adjust or decline along with it.

Sunday, October 9, 2011

If you needed another reason to switch from debit card to cash, your bank may be about to offer one. Bank of America is introducing a $5 monthly usage fee for all of its debit cards starting around January, and several other banks are expected to follow with similar fees over the course of next year. Surveys suggest that as many as 10 percent of consumers plan to pay for most purchases in cash because of new fees on debit cards.

The Bank of America fee is a usage fee, not an account maintenance fee. It applies only if you use the debit card to make a purchase over the course of the month. It does not apply to ATM transactions, just purchases. With the new fee, you may actually be better off going to the ATM in the supermarket than using the debit card at the supermarket checkout.

Better yet, get in the habit of getting cash at the bank and using it to pay for purchases, as I have been trying to do since September. I haven’t been perfect about it. Checking my accounts, I find that I used my credit cards for three point-of-purchase transactions during September, along with five gasoline purchases and a handful of online purchases. Otherwise, I’ve been paying in cash.

The gasoline pump and online seem to be the two places where it isn’t so convenient to pay in cash. Many consumers might want to take the approach I’ve taken, abandoning the debit card and using the credit card for these occasional card transactions. It might seem drastic to go without a debit card, yet if you can save $60 a year, that’s a big deal to the average consumer.

As consumers drop their debit cards, it creates an opportunity for an online-only payment mechanism that is more secure than a standard debit or credit card. At the same time, gasoline retailers might want to issue some form of purchase card that permits gasoline purchases to be paid online once a month. Currently, most gasoline brands are under contract with banks to issue MasterCard credit cards to their customers, and these contracts preclude them from offering their business fleet cards to consumers. But by the time those contracts come up for renewal, the gasoline brands might want to reconsider the business they are losing by not having a fuel-only payment mechanism for regular customers.

Saturday, October 8, 2011

Warm October weather is causing slow clothing sales in the United Kingdom, and there has been warm weather across much of the northern United States and Canada also. With warm or mild weather, people can continue to wear summer clothes, then can go almost directly from their summer wardrobe to winter, with no need to buy any new fall clothes. Retailers, then, are stuck with a fall inventory they can’t sell.

Shoppers might have been buying fall clothing in August and September, but unusually rainy weather including tropical storms kept many shoppers at home during that period. Clothing is less visible when it is raining, and rainy weather takes much of the fun out of shopping. Hurricane warnings have a psychological impact, making clothing seem less important.

Higher clothing prices are also a deterrent for consumers. Shoppers might have glanced at the fall clothing racks, but didn’t make many impulse purchases because of the high prices.

Friday, October 7, 2011

The U.S. stock market continues to rise and fall according to the latest opinions about the European financial system. This week, stocks were rising more than falling with increasing confidence that European politicians will be able to agree on a course of action.

There is trouble at Dexia, a €500 billion European bank that somewhat evades national regulation by having its operations split evenly between Belgium and France, though it also operates in Luxembourg and has a subsidiary in Turkey. It passed “stress tests” recently, but in reality, it is barely solvent, and may be converted to a bad bank. Under that plan, the bank’s high-quality liquid assets, including slightly more than half of the bank’s assets, would be sold off. Its high-risk and low-quality assets, including European government debt, would be kept on the balance sheet under government control, split between the two countries under an arrangement that could be worked out this weekend. Regulators and the bank’s board of directors hoped to reach an agreement in principle this weekend to avoid a ripple effect in overnight lending across Europe next week.

In the United States, Bank of America this week seemed to be laying the groundwork for shutting down its retail banking operation and branch network. The bank’s web site has been working only in fits and starts since last Thursday night, yet when the bank’s CEO made a statement last night, it was not to apologize for the bank’s failure to serve its customers, but to defend the drastic fee increases it is putting into place three months from now. Often when a business raises prices while cutting back on service, it is conceding in advance that it will lose most of its customers to its competitors.

State banking regulators closed banks tonight in Missouri and Minnesota. In Missouri, Sun Security Bank seemed to be terribly overextended, claiming 29 locations across the state on its web site while reporting just $290 million in deposits at the end of June. That’s just $10 million in deposits per location, a ratio most banking executives would consider unworkable. The bank also had a high proportion of loans for failed or troubled residential real estate development projects.

Great Southern Bank is assuming the deposits and purchasing the assets. Great Southern Bank operates in the same region, but not in the same neighborhoods, so it plans to keep the branch offices operating.

The failed bank in Minnesota was The RiverBank, with $379 million in deposits and 6 locations. It operated mainly in Wisconsin, but was headquartered in the town of Wyoming, Minnesota, north of the Minneapolis-St. Paul metro area. Central Bank is assuming the deposits and purchasing the assets. Regulators realized two years ago that The RiverBank was making too many real estate development loans on the edges of the metro area and ordered it to stop, but it was too late to save the bank from the bad loans it had already made. Nationally and in Minnesota, banks operating on the edges of metropolitan areas have been hit hardest by the declining real estate market.

Thursday, October 6, 2011

Many of the things we take for granted now were not only revolutionary, but greeted with skepticism when they were first introduced.

I look around my office and see, for example, a laser printer. Offices everywhere have laser printers that can print computer documents. But this technology is only a quarter century old.

Before I had my current laser printer and the two that preceded it I had a LaserWriter Plus. It was the first laser printer I owned and the predecessor of every laser printer you see today.

The LaserWriter Plus was so widely imitated because Steve Jobs insisted that computers and printers should let users choose the fonts that appeared in the documents they created. Before the Macintosh and the LaserWriter, computers displayed text in only one form that barely deserved to be called a typeface, and laser printers could not print anything more than simple lines of text, which if you were lucky, were shown in Courier.

It was because of Jobs that the computing world became more lively and colorful. Jobs’ vision of the future of computing required the invention of a new word, WYSIWYG, for the ability to print a computer document on a printer and have it look the same on paper as it does on the computer, a profoundly strange idea at the time. WYSIWYG included the idea that a computer document could mix graphics and text willy-nilly. And even though this new idea set the world on fire, I remember how skeptical most people were at first — not just for a few weeks, but for years.

In 1989 I worked briefly at a company that had one Macintosh computer. It was used solely for creating transparencies for presentations. The people there did presentations only at the end of each quarter, so the computer sat idle 98 percent of the time.

And this was a company that was ahead of the curve. Most businesses didn’t have even one Macintosh. They created their presentations on electric typewriters.

That gives you an idea of how skeptical the world was in the early years about the WYSIWYG approach and the idea of computer documents that contained fonts and graphics.

A LaserWriter Plus, as I said, was my first laser printer, and when I got it, it changed my life. The printer’s support for typefaces made it possible for me to create the pages of my first book, a book on computer programming called Professional SAS Programming Secrets. The ability to create camera-ready pages gave me a real shot of getting my book published, a chance I wouldn’t have had otherwise. And when it was published, in 1991, it forever changed the way the world looked at SAS programming. I am proud of what I accomplished with that book. Yet it would not have been possible without the LaserWriter, and the LaserWriter, in turn, existed because of Steve Jobs’ vision of a world where typefaces belonged to everyone. That’s a vision he brought to the world even though most of the world, for years, didn’t believe it would work. And indirectly, that change made possible countless stories of changes, including mine. It was a cascade of changes that no one could have spelled out in any detail, and considered together, they changed the world beyond recognition.

Last night when I learned of Jobs’ death, I wrote a list on Twitter of revolutionary ideas that were popularized by Jobs and Apple in the face of widespread initial skepticism.

WYSIWYG: the idea of a printer that could print the same document you saw on your computer screen.

mouse: select an object on the screen by pointing.

undo: a computer that lets you change your mind or correct your mistake.

software update: a computer operating system that finds and installs its own fixes.

playlist: using a computer to select what songs to play, and in what order.

Shut Down: a computer operating system that knew how to put its house in order.

desktop bus: plug in the keyboard and printer wherever you want.

Carbon and Rosetta: a complete rewrite of the operating system shouldn’t require users to adjust.

Final Cut and Logic: pro software shouldn’t have to cost a year’s salary.

plug and play: you shouldn’t need to hire an engineer to set up your computer.

Even while recognizing that Jobs wasn’t working alone, this is an astonishing list of revolutionary ideas. These ideas are so powerful we take them for granted now, but they weren’t introduced easily. People forget that a generation ago, if you bought a computer, you expected to spend a couple of days setting it up. When Apple first came out with a computer that would set up in less than an hour, most people simply didn’t believe it. That was more than a decade ago, yet you can easily find people who still don’t believe it happened.

And this list is just a fraction of what Steve Jobs accomplished at Apple. Jobs was not really an inventor, even if he invented more things that most of us. But he recognized the value of revolutionary ideas that would simplify the way people work. And he introduced them to a skeptical world with such clarity and coherence that, often, the world took notice.

Jobs did this dozens of times. He did it year after year. He made it look easy, but it is a difficult thing to do even once.

And now, it is up to those of us who remain. I invite you, if you are able to, to discover one revolutionary idea that simplifies the way people work and introduce it to a skeptical world. Just one. And I will endeavor to do this as well. Think of the astonishing series of advances that we came to expect from Steve Jobs. If a small fraction of us are successful, that is a record of technological progress that can continue.

Wednesday, October 5, 2011

Nokia did not become the largest telephone manufacturer in the world by doing what it is doing now. As the company’s management sets it on a course of slow-motion self-destruction, some observers believe this could make Finland the next Silicon Valley.

Where will thousands of high-skill Nokia workers go after their Nokia jobs evaporate? It is fair to guess that most of them will remain in southern Finland and will try to keep working in electronic devices. Already former Nokia engineers have created some interesting start-up businesses, and this is a trend that could snowball if it is encouraged by a few early successes, successes that could easily come around the same time as the bulk of Nokia’s work force is sent packing.

Tuesday, October 4, 2011

Yes, everyone knows that a significant fraction of Bank of America customers actively hate the bank. I say this as someone who became a Bank of America customer two times over after two of its many acquisitions of the past decade. (I must also disclose that I had previously done work for various predecessor organizations of Bank of America.) My relationship with the bank didn’t last long. One day, I found that the bank had stopped accepting online payments for my credit card account. The only explanation, when I called to ask what had happened, was, “I’m sorry, we simply don’t offer that service anymore.” I took the hint, wrote and mailed one last check, and went on my way. From what I’ve heard, things have not exactly gotten better at Bank of America. Its long-suffering customers have had to put up with far more than I was willing to. If they are angry, it is because they have been mistreated.

Still, the response to last week’s announcement of a $5-per-month activity fee for debit cards caught me off guard. Customers are angry and frightened and are taking action. Based on the magnitude of the blog reactions, the bank has already lost a quarter of a million customers, not that those accounts are already closed, but they will be within a few days, with more to follow. And this for a fee that doesn’t go into effect until December or January. That is one reason I was expecting a more muted reaction. Worse, one initial analysis suggests that the new fee could cost the bank one half of its customers in the coming months. A quick survey found that only one seventh of Bank of America customers who have debit cards expect to pay the new fee. Of those who object to the fee, the vast majority said they would be closing their accounts. From history, we know that more than half of banking customers who resolve to close an account actually do so, and the proportion may be higher in this case because of the sticker shock and hard deadline. These surveys tend to skew toward more active customers, but this only means that other customers will take longer to move, not that they won’t move in the end. Needless to say, such a large loss of customers would force the bank to close most of its branch network. Bank of America estimated it would lose $2 billion per year because of new restrictions on debit card fees, and that was its rationale for the new debit card activity fee. But as a result of that move, it is losing at least $1 billion in deposits this week alone, and that, for a bank, is a far more serious matter.

The headlines from Bank of America in the five days since the announcement hint at an organization that is coming unglued. The main focus has been on the bank’s web site, which was offline for much of the weekend and inaccessible again yesterday. The bank’s explanation to major news organizations was that it was throttling its web servers, reducing its web capacity in a cost-cutting move. That explanation is as astonishing as it is implausible. The money the bank saves by idling servers during parts of the day is measured in the hundreds of dollars. It is not anywhere near the kind of cost savings that is sufficient to justify the risk of frightening already worried customers who collectively are worth billions of dollars. These would not be the actions of a functional business organization.

But on the other hand, the public relations response to the outage was equally dysfunctional. When the public face of a business disappears, that is normally considered a big enough event to justify sending an executive to reassure the public. At the least, you would expect a senior public relations representative to be fully briefed before facing the media. But Bank of America’s response yesterday recalls the early days of Napster, when interns who had impressive-sounding titles but no real information were sent to ad lib statements to reporters. It begs the question of what is really going on at Bank of America. At the same time, it creates the impression that the bank’s thousands of vice presidents are all too busy with more serious crises, though it hard to imagine a more pressing business problem than a near-complete failure of a business’s public-facing transactional infrastructure.

But then again, maybe it is not so hard to imagine a more serious crisis at a bank. Obviously, executives were not prepared for the furious customer reaction to the debit card fee announcement, or they would not have made it public the day before the end of the quarter, allowing customer reactions to further weaken an already distressed quarter-ending balance sheet. Many bloggers seem to believe the bank’s web site problems must be a denial-of-service attack in retaliation for the new fees, but I can find no evidence or even hint of that. The denial-of-service attack sounds like a nice theory but it simply doesn’t exist. Others have suggested that it is the large number of customers going to the web site to cancel their accounts that has stressed the system, but that is not credible either. In terms of web transactions, a customer preparing to close an account creates no more of a server load than a customer paying a utility bill. One more cynical theory I have heard is that the bank has been intentionally throttling its servers to slow down the pace of account closings, so that the deposits do not walk out the door quite so quickly. But that is something that would help the bank only if it barely hanging on at the edge of liquidity. Possibly that is the case, but there is nothing else that indicates that Bank of America is that close to the edge.

Customers might well worry, though. If Bank of America’s web site is fully back today, there might well be a rush of customers thinking they need to move their money quickly in case the servers are down again tonight. The millions of customers who are leaving anyway because of the new service charges might feel a greater sense of urgency at the sight of a bank web site that seems to be coming apart. And other customers might worry that the rush of customers leaving the bank could be overwhelming the bank’s resources, such that their money too might be made more accessible by placing it somewhere else, at a bank whose web site was not similarly at risk. This unfortunate confluence of stresses could create something resembling a run on the bank, even if customers are worried more about access to their money than the bank’s actual solvency.

Looking farther down the road, Bank of America’s solvency is not something to take for granted. The bank’s stock fell more than 3 percent on Friday and a total of 44 percent in the third quarter. Then, it fell nearly 10 percent more yesterday, a day when the stock market in general was down only 3 percent. Bank stocks usually decline by 10 percent in one day only in the final year or so, when losses are piling up and there is no plausible hope of creating the profits that will turn the bank around. But stocks can also decline just because they are misunderstood. Based on yesterday’s closing stock price of Bank of America, which was less than one fourth of the company’s book value, Wall Street is betting against the bank’s survival.

With such a low stock price, Bank of America cannot possibly issue enough stock to get out of financial trouble. It needs to sell whatever assets it can just to buy time, and then, it has to find a way to make a profit from operations. Its profits in the last two years have apparently mostly come from the stock market, and that is working against it now.

One asset Bank of America had hoped to spin off or sell was its correspondent lending unit. An investment group was seriously thinking of buying it, but the business was losing too much money to be sold at any price, so last night, the bank announced that this business unit will be wound down in the next two months, and its 1,200 jobs eliminated. Bank of America was not always judicious in the purchases it made in its decade-long buying spree, and more than likely, other things it is hoping to sell will also turn out to be liabilities rather than assets. The bank will be able to sell some assets and buy some time, but that leaves it with a bigger and increasingly urgent question: how can it become profitable again?

In the meantime, about 100,000 Bank of America customers are checking the bank’s web site this morning, hoping they find it online this time. Because they’ve decided it’s time to take their money out.

Monday, October 3, 2011

Over the weekend, Denmark became one of the few countries to specifically tax food. The new “coconut oil” tax is based on the saturated fat content of food. The government says the new tax may encourage citizens to eat more healthy food, but the tax falls most heavily on coconut oil, a very healthy food, and lard, a very unhealthy food, with no distinction between them.

And the fact is, saturated fat is an essential nutrient. It forms cell walls and other essential parts of the body and carries three of the best-known vitamins. Most people eat more saturated fat than they ideally should, but when scientists experiment with diets that attempt to eliminate saturated fat, the result is an increase in cardiovascular disease and other degenerative diseases as cell walls begin to break down. That is, a no-saturated fat diet (actually having 1 or 2 percent of food energy from saturated fat, because it isn’t possible to eliminate all saturated fat) is more harmful to health than a high-saturated fat diet. The latest scientific evidence suggests that saturated fat does little harm in itself, and that most of the problems associated with saturated fat come from the absence of fruits and vegetables, which generally have high nutritional value and exceptionally low levels of saturated fat.

The tax won’t particularly shape consumer behavior either. It may sound shocking that coconut oil will now cost $30 per kilogram, but a chef doesn’t really use coconut oil by the kilogram, and if you are determined to eat healthy, an extra $2 in the price of an ingredient is not likely to stop you. On the other side, the people who don’t really pay attention to what they eat probably also won’t notice that a donut now costs 25¢ more. So the new tax is really just a tax, a way to transfer money from citizens to the government by making them pay more for their food.

Food taxes are rare for a reason. Everyone needs about the same amount of food. Food taxes push poor people deeper into poverty while having minimal impact on rich people. This makes food taxes an unpopular and morally questionable revenue device. The “coconut oil” tax has other failings, including administrative difficulties and a suspicion that it falls more heavily on domestic producers than on importers. In Denmark, political observers are betting the new “coconut oil” tax will be repealed within a year. If the government cannot repeal the tax, it must at least revise it to make some kind of distinction between health food and junk food. A more sensible version of a food tax, for example, would simply tax all foods other than fruits and vegetables.

Sunday, October 2, 2011

It really wasn’t a trend-setting year for Arctic sea ice extent. Yes, Arctic ice did set a new all-time low according to the most precise measure of ice extent, and it set record lows for calendar months along the way, but the new ice extent records were barely below previous marks from the last four years. What is really noteworthy about this summer’s Arctic sea ice is not the extent, but how broken up it was. Satellite photos from the densest areas of Arctic ice this summer showed virtually all of it broken into 1- and 2-kilometer pieces with gaps of hundreds of meters between. I didn’t see any areas where ice held together in solid blocks that extended for miles in all directions. The textbook picture of solid ice largely held true until this summer, but when it broke down, the breakup extended all the way to the North Pole.

Even as the gaps filled in with new ice fragments in September, the southern edges of the ice continued to retreat. As of today, open water stretches as far north as 83° north latitude, 800 kilometers from the North Pole. Svalbard, which by historical standards ought to be connected at its north and east coasts to a near-solid polar ice mass, still has 1,000 kilometers of open Arctic Ocean waters north of it. So even if the ice in 2011 didn’t convincingly break the 2007 extent minimum record, it gives every indication of being thinner and more fragile than we have ever seen.

As I have mentioned before, this was a spring and summer of unremarkable Arctic Ocean weather. Ice observers now believe calm conditions in March, cloud cover in July, and December and January snows protect the ice cover from melting. If we were to ever get a year with the opposite conditions in these three seasons, a series of new record lows would be virtually assured.

Saturday, October 1, 2011

England is banning cigarette machines starting today. The vending machines, long since confined to pubs, were hauled away over the last couple of days, and pub owners made sure of that. Cigarette machines will be as scarce as vending machines dispensing firearms, narcotics, and other dangerous materials, because starting today, the criminal penalties are similar. The ban takes effect in the rest of the United Kingdom next year. Significantly, the ban doesn’t impose any new restrictions on places where people can sell cigarettes — it is only the machines that are affected.

Where I live, the cigarette machines started to disappear around 1975. What happened before than was shocking by today’s standards. I particularly remember the scene of 8- and 10-year old children with a handful of coins running to the vending machine in the laundromat to buy packs of cigarettes for their parents. That was illegal even then, of course, but no one had ever heard of the law being enforced. Even schools had cigarette machines at that time. The machines were kept out of the sight of students, but that didn’t mean that students weren’t the primary customers. But then, in a decade, the cigarette machines vanished from schools and hospitals, and then from the laundromat, and finally were confined to seedy bars. I can’t remember the last time I saw a cigarette machine myself.

The U.K. government cites the importance of limiting sales of cigarettes to children. The smoking habit generally forms in the early teen years. Most smokers started when they were 12, 13, or 14 years old. Those of us who make it to the age of 16 without smoking a pack of cigarettes are unlikely to experiment with cigarettes (or, for that matter, cocaine) as adults.

But under-age customers provide only about one eighth of cigarette machine revenue, and reducing the impulse purchases that cigarette machines encourage may be an equally important effect. It is unconscious behavior that feeds addictions, and purchases can be surprisingly unconscious when there is little chance of another person observing the purchase. The best evidence of unconscious, addictive purchases from cigarette machines are the people who walk to a machine, make a purchase, and return to where they were before, and a few minutes later, have no recollection of having done so. Pubs can continue to sell cigarettes from behind the counter, but have complained in advance about the lost revenue. Sales will slow. The presence of mind it takes to make an over-the-counter purchase, which might involve a conversation with a person and has a much higher chance of being observed by bystanders, will be enough to prompt most customers to have second thoughts.

The U.K. government has to take a strong stand against tobacco because the government pays for health care. In the 20th century, about half of all health care costs were tobacco-related, and that proportion is decreasing mainly because fewer people are smoking.

Despite the outcry about the various new restrictions on tobacco over the last 30 years before each goes into effect, there is strikingly little public regret afterward. This will be the case again with the cigarette machines. Only the addicts will miss them, and for a few, the change will be enough for them to break the cycle of addiction.